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Serious Contraventions and underpayment of wages

Serious Contraventions and underpayment of wages

In the Fair Work Ombudsman v Tac Pham Pty Ltd & Anor [2020] FCCA 3036 the Federal Circuit Court imposed a $230,000 penalty for underpayment of employees in first serious contravention case.

An employer, and its general manager, have been the first to be penalised under the “serious contraventions” provisions of the Fair Work Act 2009 (Cth) (FW Act) after underpaying vulnerable employees.

A “serious contravention” occurs where an employer (or person involved) knowingly contravenes provisions of the FW Act and their conduct was part of a systematic pattern of conduct. The serious contravention provisions attract maximum penalties which are tenfold and can result in significant penalties against the employer and persons involved in the contraventions.

Tac Pham Pty Ltd (the Employer) operated a café in Perth. The general manager who was at all times responsible for the management of the business.

After an audit in January 2017, the Fair Work Ombudsman (FWO) found that between December 2014 and December 2015 the Employer underpaid 25 employees (initial contraventions).

The FWO commenced proceedings in the Federal Court of Australia against the Employer and the general manager in June 2017 for the initial contraventions. They were both penalised and ordered to attend training in relation to compliance.

Unfortunately, in May 2018 the FWO attended the café again and issued the Employer with a notice to produce documents. The documents produced by the Employer identified that, between September 2017 and April 2018, the Employer had continued to underpay 11 employees. Several of the employees were juniors (further contraventions). Despite initially going to court and being penalised, the employer continued to underpay its employees!

The FWO commenced proceedings in relation to the further contraventions in the Federal Circuit Court of Australia (FCCA) against the Employer and the General Manager as accessorily liable pursuant to s 550 of the FW Act.

The Employer admitted to the contraventions of s 45 of the FW Act, the Restaurant Industry Award 2010 (the Award) and the Fair Work Regulations 2009 (Cth) (the Regulations) by:

  • failing to pay the required minimum rate of pay under the Award;
  • failing to pay Saturday, Sunday, public holiday and late-night penalty rates under the Award;
  • failing to pay split shift allowances under the Award; and
  • failing to provide employees with pay slips which included information as required by the Regulations.

The Ombudsman submitted that failure to pay minimum rates of pay under the Award and failure to provide employees with pay slips pursuant to the requirements of the Regulations were serious contraventions under s 557A of the FW Act. The Employer agreed to a statement of facts in which it admitted to the serious contraventions. The General Manager also admitted that she was involved in the serious contraventions.

During the hearing, the Employer and General Manager argued the “serious contraventions” deemed only as contraventions. The FCCA rejected this submission on the grounds that they had already admitted liability to the serious contraventions in the statement of agreed facts.

The Court considered that the Employer made no effort to improve its compliance and deliberately continued to engage in the same behaviour as demonstrated in the initial contraventions. The FCCA held that this demonstrated a “completely unacceptable” and “nonchalant approach” given the Employer’s history of contraventions.

Accordingly, the Court found that the Employer had no intention of changing its conduct and would have continued had the FWO not intervened in May 2018.

The Court accepted the need for specific deterrence as the Employer continued to underpay junior employees, which were notably the same group of vulnerable workers it had underpaid in the initial contraventions. The Court stated that the penalty should be at a level that was meaningful in order to deter future conduct.

The Court said:

“Junior employees, and even those employees who were family members of the [General Manager], were in a position where raising concerns about wages or other matters would have been confronting. Any risk of exploitation in this context is particularly serious” (at [149]).

The Court also accepted the need for general deterrence given that the Employer and General Manager had contravened the same provisions of the Award which they had previously. The Court noted that there was a need to ensure the rights and entitlements of the particularly vulnerable junior employees were protected. The Court said that the need for general deterrence must be high in order to deter other employers from engaging in similar conduct. The Court ordered the Employer to pay $191,646.00 and the General Manager to pay $38,394.00.

Lessons

It was the continuation of the conduct that was appalling. The Courts consider that exploitation of vulnerable workers and the underpayment of wages very seriously. This is the first time the FWO has secured penalties under the serious contravention provisions of the FW Act, and heavy they were indeed.


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